Property

Land tax not the way to go

Stamp duty or a new build restriction would be more effective than introducing a land tax for non-resident buyers, property experts say.

Tuesday, April 26th 2016

Veteran property investor Olly Newland

Over the weekend, Prime Minister John Key raised the possibility that a land tax for non-resident property buyers could be introduced – if evidence shows they are pushing up house prices.

Such a land tax could also impact on non-resident New Zealand citizens with property in New Zealand, although Key told media they would have to have been non-resident for some time.

Suggestion of such a land tax has been greeted with dismay by many in the property sector.

Positive Real Estate director Campbell Venning warned that introduction of a land tax could foreshadow the introduction of a capital gains tax.

“I can see where the government might be coming from politically, with such a land tax. But it is opening up the Pandora’s Box to a capital gains tax, and I don’t think anyone in property wants that.”

Venning said he was all for foreign capital coming into New Zealand, but did think that – as with foreign investment in shares and business – it should be taxed.

It was a double-edged sword though because doing so would put greater focus on money-generating property.

“There would be real time visibility on the sector and the government might decide to make it more black and white and simply say ‘if you are making money on property you should be taxed on it’.”

But he added that the world is moving towards a more international tax system and New Zealand is starting to play catch-up.

Other alternatives – such as reinstituting a stamp duty or restricting foreign buyers to the purchase of new builds – would be more effective, according to commentators.

Veteran property investor Olly Newland said a land tax wouldn’t work because overseas buyers will keep buying as it is still worthwhile for them.

“Imposing stamp duty on local sales for everyone, with the exception of first home buyers, would be a much better solution.”

He said a stamp duty would mean that much bigger cash lump sums were required for deposits which would slow down many buyers.

“The government needs to do something to curb the market without collapsing it and stamp duty would do that without affecting prices to much.”

In his view, the necessary legislation for stamp duty would be far easier to introduce than that required for a non-resident land tax.

Property Institute chief executive Ashley Church said taxing foreign investors might make a few people feel better, but it would do little to slow down house price inflation in the Auckland market.

He is a long-time advocate of the approach adopted by Australia whereby non-resident property buyers are restricted to only buying or building, new houses.

If these rules are breached, non-resident buyers are liable for large fines.

Church said the government should adopt such a policy for New Zealand.

“It would be a much more effective way of slowing down house price increases in the medium term because it would address the shortage of supply rather than trying to artificially dampen demand.

“Rather than penalising those who want to invest in our real estate market, we should be channelling that investment into getting more homes built, more quickly.”

NZ Initiative research fellow Jason Krupp said the introduction of a land tax was a simple, knee jerk reaction to a complex problem.

But the current housing crisis is the manifestation of multiple problems and the government should be addressing the various issues creating the problem.

“Supply is key. The government should be addressing regulatory factors – like the long term funding of infrastructure, incentives for councils, and the lingering impact of the leaky home crisis on consent processes – in order to boost supply.”
 

Next Article

Insurance shake up

Comments

No comments yet

Heartland Bank - Online 6.69
SBS FirstHome Combo 6.74
Wairarapa Building Society 6.95
Unity 6.99
Co-operative Bank - First Home Special 7.04
ICBC 7.05
China Construction Bank 7.09
BNZ - Classic 7.24
ASB Bank 7.24
ANZ Special 7.24
TSB Special 7.24
Unity First Home Buyer special 6.45
Heartland Bank - Online 6.45
China Construction Bank 6.75
TSB Special 6.75
ICBC 6.75
ANZ Special 6.79
ASB Bank 6.79
AIA - Go Home Loans 6.79
Kiwibank Special 6.79
BNZ - Classic 6.79
Unity 6.79
Westpac Special 6.39
China Construction Bank 6.40
ICBC 6.49
SBS Bank Special 6.55
Kiwibank Special 6.55
BNZ - Classic 6.55
Co-operative Bank - Owner Occ 6.55
ASB Bank 6.55
AIA - Go Home Loans 6.55
TSB Special 6.59
Kainga Ora 6.99
SBS FirstHome Combo 6.19
AIA - Back My Build 6.19
ANZ Blueprint to Build 7.39
Credit Union Auckland 7.70
ICBC 7.85
Heartland Bank - Online 7.99
Pepper Money Essential 8.29
Co-operative Bank - Owner Occ 8.40
Co-operative Bank - Standard 8.40
First Credit Union Standard 8.50
Kiwibank 8.50

More Stories

Support for regulation

Monday, March 18th 2024

Support for regulation

REINZ has emphasised the need for property management regulation to Parliament’s Social Services and Community Committee.

A better investment market

Thursday, March 14th 2024

A better investment market

“Reinstatement of interest deductibility starting from the new tax year on 1 April brings property investors back in line with every other business in the country, where interest costs are a legitimate deductible expense," Tim Horsbrugh, New Zealand Property Investors Federation (NZPIF) executive committee member says.

[OPINION] Recessionary times

Thursday, March 14th 2024

[OPINION] Recessionary times

It is not the best out there for many businesses and property sector people. Sales are down across the board, our clients’ confidence is falling, and there is a lot of uncertainty.

Interest rate expectations: It’s not over yet

Thursday, March 07th 2024

Interest rate expectations: It’s not over yet

Most Kiwis think interest rate increases have peaked.